Review Your Reports Once The Time Is Up
Once your bankruptcy has been completed and the seven- or 10-year clock has expired, review your reports again to make sure the bankruptcy was removed.
A bankruptcy should fall off your credit reports automatically, but if it doesnt, notify the credit bureaus and ask to have the bankruptcy removed and your reports updated.
Monitoring Your Credit Report
Also, it’s essential to examine your credit report for mistakes after your discharge. If you notice an error, correct it promptly so that it doesn’t derail your efforts to rebuild your credit. You can check your credit report for free using annualcreditreport.com . You’re entitled to one free copy per year from each of the three reporting agencies. Requesting a report from one of the three agencies every four months is an excellent way to keep track of changes. Also, all of the three reporting agencies allow you to file a dispute online.
Bankruptcy Impact To Credit Score
Its difficult or better yet, impossible to predict exactly how far your credit score will fall after you file bankruptcy. The impact to your credit score is largely based on where your credit stands now and what information is on your credit report.
According to myFICO, a high credit score can expect a huge drop in their score, compared to someone with a “modest” score. Another factor to consider is the number of accounts included in the bankruptcy filing.
FICO also presents a mock scenario to better understand the effect of negative actions on your credit score. Different actions impact your score differently, depending on what your score is to begin with. If credit problems have already pulled your score into the 500-range, you have a little less of a credit score to protect.
But, thats just an example of what could happen to your credit score. Yours might not drop as much or it might drop more. You wont know unless you actually file for bankruptcy.
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Become An Authorized User On A Credit Card
If you dont want to take out a secured credit card, you can ask a family member or friend who has good credit to add you as an on one of their credit cards. You may see an increase in your credit score if the issuer reports the cards positive payment history to the three main credit bureaus. However, your score could take a dip if the primary cardholder makes a late payment or maxes out their credit limit.
How Does Filing For Bankruptcy Affect My Credit Score
Bankruptcy is a great way for individuals across the country to get their financial situation back on track. However, one of the most common questions our firm is asked is, how will filing for bankruptcy affect my credit score? Please continue reading and speak with our experienced New York bankruptcy attorney to learn more. Here are some of the questions you may have:
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Learn How To Rebuild Your Credit After Chapter 7 Bankruptcy
Updated By Cara O’Neill, Attorney
Everyone wants to remain debt free after discharging credit card balances, medical bills, and other qualifying debt in Chapter 7 bankruptcy. Enjoy your fresh financial start for years to come by following these tips:
- stay within a budget
- monitor your credit report for errors, and
- learn how to purchase a new car or home relatively shortly after bankruptcy.
If you take control of your finances now, you can be one of the many who prosper following Chapter 7 bankruptcy.
Dealing With Your Vehicle
One of the forms you will file with the bankruptcy court is called the Statement of Intention. In this form, you tell the court what you plan to do with property that is securing a debt you owe, like real estate or a vehicle.
If you own your vehicle but are still paying on the loan, you have a few options on how to deal with it in Chapter 7 bankruptcy.
You can reaffirm the debt, keep your vehicle, and continue making payments. This means the debt will not be discharged and you will continue making monthly payments during and after bankruptcy. If you miss future payments the lender will have the right to repossess the vehicle and possibly try to collect on any deficiency between the balance you owe and the amount they get when selling the vehicle.
If you select this option in your Statement of Intention, your car lender will send you a reaffirmation agreement for you to complete and return. In some bankruptcy cases a reaffirmation hearing will be scheduled.
If you choose to surrender your vehicle, then it will be repossessed and the debt will be discharged in your bankruptcy. Filers with high car payments they can’t afford often choose to surrender their car to get out of the debt.
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Do Bankruptcies Affect Second Mortgages
Second mortgages and home equity lines of credit are also impacted by bankruptcies. If you have a second mortgage or HELOC, youre not responsible for it under a Chapter 7 bankruptcy, but youre required to keep paying on it if you want to keep the house without a problem.
Things become a little more complex with a Chapter 13 bankruptcy. If you can prove that your existing equity isnt enough to cover what you owe on a second mortgage or HELOC, you can present that evidence in bankruptcy court. If a judge agrees, the junior lien taken out after your first mortgage may be stripped off.
One thing to note is that a lender may fight this, so to give yourself the best chance of success, you may want to have an appraisal done before you file for bankruptcy.
Talking To Your Creditors About Repayment
If youre struggling with debt and dont want to risk filing for bankruptcy, talk to your creditors as soon as possible.
Explain the situation and ask if they would be willing to settle for a smaller amount paid over time.
You should also look into options like loan refinancing or consolidation that can help you reduce your monthly payments without going into bankruptcy.
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When Bankruptcy Is The Best Option
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Bankruptcy isnt the end of the world. It may even be good for you.
Bankruptcy stops collection calls, lawsuits and wage garnishments. It erases debt. And despite what youve heard, bankruptcy may help your credit scores.
But thats not the whole story.;Most people struggle so long with their debt that their credit is already battered by the time they file for bankruptcy. And once they do, their scores typically rise, not fall. If the debt is erased which is known in bankruptcy court as a discharge scores go up even more.
Within a year, youre way better off, says Jaromir Nosal, assistant professor of economics at Boston College, who co-authored a study for the Federal Reserve Bank of New York about the effects of bankruptcy. Its a pretty rapid rate of recovery.
The Meaning Of Credit Reports
On Canadian credit reports , each credit account is assigned a credit score on a scale from R1 to R9. R1 is the best credit rating and R9 is the worst. The R stands for revolving credit accounts that can carry a running balance, on which you are required to pay only a portion each month.
Here are the credit score meanings:
- R1 You pay that credit account on time
- R2 Your payments are 30 days late
- R3 Your payments are 60 days late
- R4 Your payments are 90 days late
- R5 Your payments are 120 days late
- R7 Typically used for consumer proposals, consolidation orders, or debt management plans
- R8 Shows that a secured creditor has taken steps to realize on their security ; rarely appears on a credit report as after repossession the creditor typically initiates legal or collection action, which is rated R9
- R9 Typically used when an account is placed for collection or considered un-collectible, or if you are bankrupt; R9 can also appear in consumer proposal
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How Will Bankruptcy Affect My Credit Score
Many people considering Chapter 7 or Chapter 13 bankruptcy are worried about the effect bankruptcy will have on their . Although creditors don’t like to see bankruptcy on your credit report, the damage it will do to your credit scores depends, in large part, on how good your credit was before you filed.
If you’re delinquent on many accounts and your debt-to-asset ratio is high , your credit is already in the tank. If you file for bankruptcy, your scores will take a dip, but it won’t take a huge plunge. If, on the other hand, your credit is good before you file for bankruptcy, then your scores will take a much bigger hit post-filing.
A Lenders Perspective On Chapter 13 Bankruptcy
A lender, in determining whether to extend new credit to a consumer, will review the persons credit report and credit score. If you are delinquent on multiple accounts, you will appear to be a poor credit candidate. A lender will rightfully be concerned that if you are not paying other debts, that you will also not pay this new debt. A Chapter 13 bankruptcy, on the other hand, will demonstrate to lenders that you have the ability to make payments on all debts and you are making an honest effort to do so. After the completion of a Chapter 13 bankruptcy plan lenders may also view you as less of a risk because some or all of the debt was repaid, rather than liquidated.
How Does Debt Settlement Affect Your Credit Score
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In a Nutshell
Debt settlement allows you to pay off a debt for less than the total you owe, but it can lower your credit score. If you compare the permanent benefits of getting rid of a debt burden against the temporary negative aspects of a lower credit score, you might find that debt settlement is a good option for you. If youâre interested in settling your debt, keep reading to learn how debt settlement affects your credit score and whether debt settlement or a different debt relief option is the best for you.
Debt settlement allows you to pay off a debt for less than the total you owe, but it can lower your credit score. If you compare the permanent benefits of getting rid of a debt burden against the temporary negative aspects of a lower credit score, you might find that debt settlement is a good option for you. A report on debt settlement trends from the Consumer Financial Protection Bureau shows there was an increase in debt settlements between 2016-2019, and almost $6 billion worth of debt was settled in 2019.
Rebuilding Your Credit Score
Your ability to borrow is dependent on more than just one item on your credit report. A past bankruptcy is one factor, but a potential lender will review other factors including your income, work history, living situation, and other credit you have re-established.
If you want to rebuild your credit rating after bankruptcy, it is recommended that you do the following:
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Think About The Long Term
When you need debt relief, it’s natural to focus mostly on what bankruptcy, debt settlement or any other alternative can do for you right now. But because each of these options can affect your credit score and financial situation, it’s crucial that you take the time to research every course of action and consider both the short- and long-term effects of each.
Before you go through with one of them, consider consulting with a credit counselor or bankruptcy attorney to get an objective, expert opinion. Credit counselors generally don’t charge for this service, and many bankruptcy attorneys offer free consultations as well.
Between your own research and expert advice, you’ll have a better chance of choosing the correct path forward.
Mistakes On Credit Reports After Completion Of A Consumer Proposal
Unfortunately, it is not uncommon to find mistakes on your credit report after youve completed the consumer proposal. Its advisable to get the inaccuracies resolved as soon as you can, so your credit report reflects the correct and most updated picture. After all, upon completion of a consumer proposal, youre looking forward to a fresh and optimistic start and rebuilding your credit. Both Equifax and Transunion have processes in place to correct erroneous information on your credit report in Canada.;
So be sure to examine your credit reports and check whether creditors are reporting any previously owed figures as fulfilled or still pending. If you find any discrepancies, you can initiate a rectification by submitting a correction request to Equifax or TransUnion . The request must include a completed Credit Investigation Request Form along with any pertaining documents as evidence to substantiate your request.
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How Does Chapter 7 Bankruptcy Affect My Existing Mortgage
When you file Chapter 7, your existing property will be deemed either exempt or nonexempt. Exempt means youll be able to keep the property throughout the bankruptcy process, as long as you can catch up and stay current on your payments.
Nonexempt means you will either be required to surrender the property or pay its value in cash as a part of the bankruptcy. In some cases, people are allowed to keep nonexempt properties. It all depends on the bankruptcy trustee and how they choose to handle the property.
To understand how Chapter 7 impacts your existing home mortgage, you must first understand the difference between a loan and a lien.
When you get a mortgage, your mortgage company gives you a loan. They let you borrow money in order to buy a property. When they do that, they place a lien on the property. A lien is a right or interest in the property that the mortgage company has until the debt is paid in full.
When you file Chapter 7, you are no longer legally obligated to repay the loan. Legally obligated is the key phrase here because Chapter 7 does not get rid of the lien on the property. Your lender still has a right to the property if the debt is not paid.
So basically, you dont have to pay your mortgage. But if you dont you will lose your property because your lender will likely enforce the lien they have. If you are able to keep your home as part of Chapter 7, its probably a good idea to do everything in your power to keep paying your mortgage loan.
Bankruptcy Information Can Be Wrong
You may want to hire a credit repair attorney if your record shows inaccurate financial or bankruptcy information. They can speak with credit reporting agencies, credit card companies, or credit card issuers if you are having personal finance trouble. An attorney can also step in if a company does not discharge your debt correctly or you fall into a credit counseling scam.
Remember: A bankruptcy discharge legally stops creditors from harassing you. You have rights if a company is not following the process or respecting your bankruptcy filing.
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Will Bankruptcy Increase My Credit Score
The effect that a bankruptcy will have on credit scores depends on a variety of factors. At our office, we obtain specialized bankruptcy credit reports that give a projection for what the client’s credit score could be one year after filing for bankruptcy. While bankruptcy is certainly considered a “derogatory notation” for credit reporting purposes, we find that many of our client’s benefit from anincrease in credit score. This improvement in credit is, in part, due to the debts that are eliminated in the bankruptcy discharge. Many people are debt-free as a result of filing for bankruptcy, which can increase their credit worthiness. However, this absolutely varies on a case-by-case basis. For example, some people that have poor credit may see a larger increase to their score as a result of bankruptcy as compared to a person that file bankruptcy with a good credit score.
Applying For Credit After Bankruptcy
As it can be difficult to get credit after filing bankruptcy, your personal relationship with a lender can be crucial. Having employees or management at a bank, a , or an auto lender who know, trust, and like you makes it easier to get an application accepted.
You rebuild credit after bankruptcy the same way that you build credit before one: with time and a consistent repayment history. If you believe you can continue to repay a preexisting debt during and after bankruptcy, consider a reaffirmation agreement with one of your creditors to help the process of rebuilding your credit score.
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